Saturday, 8 June 2013

CIBIL Status after Settlement - Settled or Clear

Is it possible to have a low CIBIL score even after paying all your credit card or loan dues to a bank? Its not only possible, the sad fact is that such complaints are very common. Very often banks offer settlement of overdues to their customers. The settlement means the customer gets to pay only a part of the overdues and the bank closes the credit card or loan account. Thereafter, the bank's ugly collection agents don't bother the customer. There are no recovery notices, no repossession threats. The customer is left in peace. Only, the peace is transient. The customer isn't told what he must have known. In the process of settlement the bank has to take what is called in financial parlance "a haircut". The bank does not get to recover all of its principal and all of its interest (profit) from the customer. Thus, to get even with the evil customer, the bank reports the customer's sin to the god of credit called "CIBIL" - Credit Information Bureau (India) Limited. Keep Reading...

CIBIL does justice to the banking system by reducing the customer's Credit Score. CRISIL score is a number that ranges between 300 and 900. Anything above 700 is considered a good score. Anything less than 700 means the customer cannot hope to raise a new loan or get a new credit card from the banking system. In short, in order to keep their Credit Score above 700, bank customers must pay back all of their loan / credit dues in time. If there are overdues, defaults, or negotiated settlements, the score goes down. When all dues are paid back in time, CIBIL Status reported by the bank is "Blank". That is good status except that even a "Blank" status coupled with a reporting of overdues will reduce the score to some extent. The best CIBIL Status to have is a "Blank" status with zero overdues. Bad CIBIL Status will be a "Written Off" or "Settled" instead of a "Blank".

Precautions to take before doing a settlement

Just know that whenever your bank offers you a settlement of dues, ask the bank to give you in writing the status they will report to CIBIL after the settlement. In case the bank is taking a "haircut", they will not give you a "Blank" CIBIL Status. You must ask the bank for two settlement quotes - one for "Blank" status and one for other than "Blank" status. Do your best. If you cannot pay in full, all is still not lost. There are ways to recover your Credit Score later.

How to recover from a low CIBIL Score

There are two possibilities here. One, your bank might have sold its bad debts portfolio, that included your account, to an "Investor". Usually such a sale happens at a heavy discount. But whenever a customer approaches the "Investor" to repay his debt to improve his Credit Score, the "Investor" asks for all the past dues, overdues, interest accrued after the settlement, and whatever else he can ask for. Its pure blackmail. No concessions are given because the "Investor" bought the portfolio in the first place to make money. I have seen examples of a Rs. 10,000 original due becoming Rs. 3.50 lakh when the customer approached the "Investor" for a final settlement. The second possibility is that your bad debt is still in the books of your bank. The bank too will act almost like an "Investor" except that there will be a better chance of making a humanitarian settlement. After you pay whatever the "Investor" or the bank want, they will report a "Blank" status to CIBIL and your Credit Score will improve.

God, I miss the days when there was no CIBIL.

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All information given in this blog is obtained from sources in the public domain, RTI applications, discussions with bankers, bank customers in India and also with some employees of Reserve Bank of India having knowledge of the working of various Offices of Banking Ombudsman in India. All information in this blog is presented on a best effort basis and is not claimed to be complete information on any of the subjects covered in this blog. Use of any information given in this blog is purely voluntary on the part of the readers. Author of this blog does not assume any responsibility for any action of the readers related to any matter discussed in this blog or any consequences thereof. Readers of this blog are advised to consult a legal practitioner before taking any action related to any matter discussed in this blog.